Please note that many of the quotes are provided for FREE online.
Written Report and Excel Sheet, Please read everything below to guide you!
Many quotes, but especially Treasury Quotes, are available on the "Bonds, Rates, & Credit Markets" tab found on the The Wall Street Journal's Market Data Center.
Put and Call options are readily available on Yahoo Finance. Enter any ticker symbol and find the "Options" tab. Here is a sample of Intel option prices.
A variety of Futures Contracts can be found at the CME Group.
Project Outcomes
After you have successfully completed this project, you should be able to do the following:
Describe how different financial markets work.
Read and comprehend financial market quotes.
Record basic financial transactions.
Activities
Read the following material under the heading “How to Make Transactions” and turn to Appendix A at the end of this course manual for an example of this project.
Spend at least ten to fifteen minutes reviewing The Wall Street Journal. Begin checking the Credit Markets Report each day (check the index at the bottom of page 1 in the WSJ for a quick reference to the page on which it appears).
“Buy” at least one T-bill, one Treasury note, and one long-term Treasury bond. You may buy a corporate bond, but emphasize treasury securities. Find the page or pages in Section C of the WSJ which list(s) Treasury notes, bonds, and bills. You will need this information to select a beginning portfolio in Treasury securities. For additional information, refer to pages 84 through 105 in the paperback supplement titled Guide to Understanding Money and Investing, to Chapter 4 in the textbook, and to the material in Appendix A of this course manual. Maintain short-term, intermediate-term, and long-term bonds in your portfolio so you can learn about the yield curve over time. Also, think about how diversification can reduce risk in a portfolio.
Refer to the financial pages of the WSJ, and make at least one options transaction and one futures transaction.
“Buy” at least one foreign currency and at least one foreign bond.
Add at least one put, one call (options) and one future in derivative markets.
Add at least one foreign and one domestic stock.
At the conclusion of your course work, sell all of your investments and do a brief analysis of your results and reasons for these results. Check the accuracy of your calculations. Comment on the economic and market factors that may have influenced the outcome of your decisions. This analysis should be typed, and double-spaced. You must submit both a sheet of your investments and a written analysis/report. You will not receive credit for the project without both parts of this assignment.
Please Note: Many of the needed quotes can also be found online through The Wall Street Journal's Market Data Center.
How to Make Transactions
You are allotted an initial (imaginary) sum of $5 million. Be sure not to go over this limit. Assume no transaction costs, fees, etc., and do not worry about taxes or coupon/dividend payments. If you wish to allocate all your funds ($5 M) among all the required markets at the start, go ahead and do so if you know how to make the transactions. Don’t worry about making the right transactions or about whether you made your calculations correctly. This is a learning exercise; just keep working at it and continue refining what you know. Keep referring to your investments in the coming days or weeks, and you will likely catch any errors you have made.
(Note: I have received numerous questions from students over the years asking how they “get the funds” to invest. These are only imaginary investments. We do not fund real investment projects.)
Select your investment choices, track their performance and determine how wisely you invested. You will be graded on the write-up and analysis and how well you followed directions and tracked your investment. Your grade will not depend upon whether you closed with a gain or a loss.
You will not submit your portfolio until the end of the course, but don’t wait until the end and then go back and reconstruct a portfolio after the fact! Put yourself on the honor system. The more transactions you make, the more you will learn, and the more fun you will have with the project. The number of weeks that you use to monitor your portfolio will depend on how long it takes you to complete the course. As a minimum, you should monitor your portfolio and make entries once a week for at least a month. Most students will take several months to complete the course; if you take about three to four months, plan to monitor your portfolio at least every other week selling all of your investments before you turn the assignment in so you can calculate gains and losses. However, if you want to keep track of your investments for a longer period, you may. You will learn more and have more fun doing it.
There is no set form for the portfolio, other than to make the minimum transactions listed. Other than those transactions, you have free reign to do whatever you want to and to go wherever your intuition in the markets leads you. Just remember, this is a learning process and is designed to simply get you to learn how to do these transactions and enjoy it in the process. See what kind of investor you are. Are you a risk taker? How good of an investor are you? Did you make wise choices? What factors do you think influenced your returns?
U.S. Treasury Bills
Sample WSJ Listings:
6/19/96
Maturity Days to Maturity Bid Asked Ask Yld.
Dec 19 ‘96 182 5.24 5.22 -0.03 5.44
7/31/96
Maturity Days to Maturity Bid Asked Ask Yld.
Dec 19 ‘96 140 5.24 5.22 -0.03 5.40
Description of Columns
The first column gives the maturity date.
The second gives the number of days to maturity.
The third gives the price the dealer will pay for the bill.
The fourth gives the price the dealer will sell the bill for.
The fifth is the change in the asked price from the previous day’s close.
The sixth gives the yield you would receive if you held the bill until maturity.
Steps to Buying a T-bill:
Select the bill you would like to buy (reasons for purchase may vary and are not even necessary).
Copy the information about this bill into your worksheet from left to right so you can find the bill later when you wish to sell it (buy date, instrument type, issuer, maturity date).
Decide on how much you want to invest in this bill (increments of $10,000 only) and write this in the Face Value column ($110,000 in the example).
Calculate the price you must pay per $100 to buy the face value of the bill (i.e., $110,000) using the following formula, write this in the Price Paid column (i.e., $97.36). Use Ask column. Note: I = bid or ask as a decimal (5.22 = .0522).
Divide the face value by 100 (to get number of 100s) and multiply the result by the price per hundred derived above and write the result in the Total Investment column. This is the total cost of the investment.
Steps to Selling a T-bill:
Using the information you recorded at the time of purchase (maturity date, etc.), locate the bill in the WSJ or on Bloomberg.
Use the formula above to calculate the price received (per $100) with the number from the bid column (i.e., .0524).
Divide the face value by 100 and multiply the result by the price received and write the answer in the Total Received column.
Calculate gain or loss by subtracting the Total Investment column from the Total Received column.
How to Find a Specific T bill on Bloomberg:
To display functions available in government sector, press the yellow [GOVT] key and hit [GO].
To see a listing of all U.S. T bills:
Choose number 1 (Ticker Symbol Look Up) from the Government Market Sector menu.
From the Government Bond Ticker Symbol menu, choose number 14 (U.S.A.)
From the U.S. Government Bond Ticker Symbol menu, choose number 1 (U.S. T bill).
To display a menu of functions for a specific T bill, type the number of the T bill followed by the [GOVT] and [GO].
U.S. Treasury Bonds and Notes
Record basic bond transactions on a worksheet by referring to quotations in the WSJ. Two copies of a blank worksheet for making portfolio entries are found in Appendix B at the end of this course manual. If you record entries by hand, you should make a number of photo copies of the form so you will have extra copies as you go along. You may want to use a computer spreadsheet instead, in fact, I recommend doing so. You can use the form in Appendix B as a guide for organizing your spreadsheet. However, a spreadsheet is not required in case you don’t have a computer.
Sample WSJ listings:
6/19/96 Maturity
Rate Month/Year Bid Asked Ask Yld.
6 3/8 Jun 97n 100:15 100:15 +1 5.83
14 1/4 Feb 02 134:30 135:02 +1 6.70
7/31/96 Maturity
Rate Month/Year Bid Asked Ask Yld.
Dec 19 ‘96 140 5.24 5.22 -0.03 5.40
7/31/96 Maturity
Rate Month/Year Bid Asked Ask Yld.
6 3/8 Jun 97n 100:13 5.84
14 1/4 Feb 02 134:22 134:26 +7 6.64
Description of Columns:
The first column gives the coupon rate.
The second gives the month and year of maturity (n=note).
The third gives the price the dealer will pay for the security.
The fourth gives the price the dealer will sell the security for.
The fifth gives the change in the ask price from the previous day.
The sixth gives the yield you would receive if you held the security to maturity.
Steps to Buying a T-note or a T-bond:
Select the note or bond you would like to buy (reasons for purchase may vary).
Copy the information about the security into your worksheet from left to right so you can find it later when you wish to sell it (buy date, instrument type, issuer, maturity date, coupon rate).
Decide on how much you want to invest in this note or bond (increments of $1,000 only) and write this in the Face Value column ($50,000/$100,000 in the example).
Calculate the price per $100. Using the numbers from the Ask column, divide the number after the colon by 32 and add this to the number before the colon. Write the result in the Price Paid column.
Divide the face value by 100 (to get the number of 100’s) and multiply the result by the price per hundred derived above and write the result in the Total Investment column. This is the total cost of the investment.
Steps to Selling a T-note or a T-bond:
Using the information you recorded at the time of purchase (maturity date, coupon rate, etc.), locate the note or bond in the
WSJ or on Bloomberg.
Use the formula above to calculate the price received (per $100) with the number from the bid column (i.e., .0524).
Divide the face value by 100 and multiply the result by the price received and write the answer in the Total Received column.
Calculate gain or loss by subtracting the Total Investment column from the Total Received column.
How to Find a Specific T-note or T-bond on Bloomberg:
To display functions available in government sector, press the yellow [GOVT] key and hit [GO].
To see a listing of all U.S. T bonds:
Choose number 1 (Ticker Symbol Look Up) from the Government Market Sector menu.
From the Government Bond Ticker Symbol menu, choose number 14 (USA).
From the U.S. Government Bond Ticker Symbol menu, choose number 10 (U.S. T note / T bond).
To display a menu of functions for a specific security, type its number followed by [GOVT] and [GO].
Corporate and High Yield Bonds
Sample WSJ Listings:
6/19/96 Cur.
Bonds Yld. Volume Close Chg.
IMB 7.2 103 100 7/8 +1/8
7/14/02
7/31/96 Type/
Name Rating Coupon Maturity Bid Chg. Yld.
Chiquita a/B+ 9.125 3/04 94 un. 10.17
7/31/96 Cur.
Bonds Yld. Volume Close Chg.
IBM 7_02 7.2 47 101 1/4 +1/4
7/31/96 Type/
Name Rating Coupon Maturity Bid Chg. Yld.
Chiquita a/B+ 9.125 3/04 95_ un. 10.03
Description of Columns:
The first columns give the name of the company who issued the bond, the coupon rate, and year.
The second columns give the yield to maturity or the rating.
The third columns give volume traded or the coupon rate.
The fourth columns give the closing price or the maturity date.
The fifth columns give the net change in the closing price or the three o’clock bid price.
The sixth column gives the change from the three o’clock bid price the previous day.
The seventh column gives the yield to maturity.
Steps to Buying Corporate or High Yield Bonds:
Select the bond you want to buy (based on issuing company or whatever).
Fill in the necessary information from left to right on the worksheet.
Decide how much you want to invest in this bond (increments of $1,000 only) and write the amount in the Face Value column.
Calculate the price per $100: Given in Closing or 3 p.m. bid columns as a whole number and fraction of a dollar. Fill in the amount in dollars and cents in the Price Paid column (i.e., $100.88 or $94.50).
Divide the Face Value by 100, multiply by the price per $100, and write the result in the Total Investment column.
Steps to Selling a Corporate or High Yield Bond:
Using the information you recorded at the time of purchase (Maturity Date, Coupon Rate, etc.), locate the bond in the WSJ or on Bloomberg.
Calculate the price received (per $100) given in the bid column (i.e., $101.25 or $95.25).
Divide the Face Value by 100 and multiply the result by the Price Received and write the answer in the Total Received column.
Calculate gain or loss by subtracting the Total Investment column from the Total Received column.
How to Find a Specific Corporate Bond on Bloomberg:
To display functions available in corporate market sector, press the yellow [CORP] key and hit [GO].
To see a listing of securities for a desired corporation:
Choose number 1 (Ticker Symbol Look Up) from the menu.
Enter partial issuer name (ex: AT for AT&T).
Foreign Currency
Sample WSJ Listings:
6/19/96
Spot Market U.S. $ equiv. Currency per U.S. $
Tues. Mon. Tues. Mon.
Britain (Pound) 1.5455 1.5440 .6470 .6477
6/19/96
Forward Prices U.S. $ equiv. Currency per U.S. $
Tues. Mon. Tues. Mon.
Germany (Mark) .6611 .6575 1.5126 1.521
Japan (Yen) .009282 .009174 107.74 109
Swtzrlnd (Franc) .8029 .7984 1.2455 1.2525
7/31/96
Spot Market U.S. $ equiv. Currency per U.S. $
Tues. Mon. Tues. Mon.
Britain (Pound) 1.5578 1.5583 .6419 .6417
7/31/96
Forward Prices U.S. $ equiv. Currency per U.S. $
Tues. Mon. Tues. Mon.
Germany (Mark) .6770 .6754 1.4472 1.4806
Japan (Yen) .009263 .009246 107.96 107.70
Swtzrlnd (Franc) .8315 .8288 1.2026 1.2065
Description of Columns:
The first column lists the country and the name of its currency.
The second column lists the exchange rates as dollars per unit of foreign currency (U.S. point of view). Always use the second column for normal transactions.
The third column lists the exchange rates as units of foreign currency per dollar (foreign point of view).
These exchange rates are used for buying foreign currencies and foreign government bonds. Some columns on the worksheet are not used.
Remember that once you have invested in a foreign currency or bond, you want the money to depreciate.
Steps for Buying Foreign Currencies:
Select the currency you want to buy (British pounds and Swiss francs in the examples) and fill in the name of the country, date of purchase, etc.
Decide how much of the currency you want to buy and write the amount in the Face Value column.
Copy the exchange rate from column two into the Price Paid/Unit column. This tells you how many dollars it costs to buy one unit of the foreign currency.
Multiply the Face Value column by the Price Paid/Unit column to find the total investment.
Steps to Selling Foreign Currencies:
Find the currency in the WSJ or on Bloomberg.
Copy the exchange rate from column two into the Price Received column. This tells you how many dollars you will receive for each unit of foreign currency.
Multiply the Face Value by the Price Received to find the Total Received.
Subtract the Total Investment from the Total Received to find your gain or loss.
How to Find a Specific Currency on Bloomberg:
To display functions available in currency sector, press the yellow [CRNCY] key and hit [GO].
To find a currency of a particular country:
Choose number 3 (Ticker Symbol Look Up) from the menu.
Type the partial name of the country (ex: Bri. for Britain).
From the list of countries, choose the number of the desired country.
To display a menu of functions for a specific currency, type its number followed by [GO].
Note: Bloomberg quotes currencies as U.S. dollars per unit of foreign currency so no conversion is necessary.
Foreign Bonds
Sample WSJ Listings:
6/19/96
Coupon Maturity (mo./yr.) Price Change Yield
GERMANY (5 p.m. London)
5.75 8/00 101.721 +0.431 5.21
JAPAN (3 p.m. Tokyo) number 30
3.70 9/15 99.109 unchanged 3.76
Description of Columns:
These bonds are listed in the currency of the issuing country.
The first column gives the coupon rate in the foreign currency for the bond.
The second column gives the month and year of maturity.
The third column gives the price per 100 units of foreign currency you must pay to buy the bond. The same price is used when selling the bond.
The fourth column gives the change in the price from the previous day’s close.
The fifth column gives the yield to maturity in the foreign currency.
Steps to Buying a Foreign Bond in a Foreign Currency:
Select the bond you want to buy (based on issuing country or whatever).
Fill in the necessary information from left to right on the worksheet.
Decide how much you want to invest in this bond (increments of 1,000 units of foreign currency only) and write the amount in the Face Value column (i.e., 100,000DM).
Calculate the price per 100 units of foreign currency: Given in Price column as whole numbers. Fill in the amount in the Price Paid column. (i.e., 101.721DM).
Divide the Face Value by 100 and multiply by the price per 100 units of foreign currency to find the total investment in units of the foreign currency. However, all values in the Total Investment column should be in U.S. dollars only! You must look up the appropriate exchange rate to convert the amount into U.S. dollar equivalent using the steps outlined in Buying Foreign Currencies. There is no space to write in the exchange rate used.
Steps To Selling a Foreign Bond In A Foreign Currency:
Using the information you recorded at the time of purchase (Maturity Date, Coupon Rate, etc.), locate the Bond in the WSJ or on Bloomberg.
Calculate the Price Received (per 100 units of foreign currency) given in the Price column (i.e., 102.069DM).
Divide the Face Value by 100 and multiply the result by the Price Received to find the total received in the foreign currency and use the exchange rate to convert the sum into a dollar amount.
Calculate Gain or (Loss) by subtracting the Total Investment column from the Total Received column.
How to Find a Specific Foreign Bond on Bloomberg:
To display functions available in government market sector, press the yellow [GOVT] and hit [GO].
To see a list of bonds for a desired country:
Choose number 1 (Ticker Symbol Look Up) from the Government Sector Menu.
From the Government Bond Ticker Symbol menu, choose number of desired country.
Choose number of desired bond type
To display a menu of functions for a specific international government bond, type the number of the bond followed by the [GOVT] and [GO] keys.
Futures
Sample WSJ Listings:
6/19/96
Open High Low Settle Change Lifetime High Lifetime Low Open Interest
Sept. 317 321 315 321 +6 323 298 281
Corn (CBT) 5,000 bu.; cents per bu.
7/31/96
Open High Low Settle Change Lifetime High Lifetime Low Open Interest
Sept. 308 310 304 304 -3 1/4 335 298 847
Corn (CBT) 5,000 bu.; cents per bu.
Description of Columns:
The italicized lines tell the commodity, the market it’s traded on, the units it’s measured in (bushels), the number of units per contract (5000), and the way prices are quoted below (cents per bushel).
The first column gives the maturity date of the contract when it must be honored.
The second column shows the price when the market opened.
The third column gives the highest price of the day.
The fourth column gives the lowest price.
The fifth column gives the closing price.
The sixth column gives the change in closing price from the previous day.
The seventh and eighth columns give the most and least somebody has paid for a contract.
The eighth column gives the number of contracts outstanding.
How to Buy a Futures Contract:
Decide on a commodity or item to buy (corn).
Decide on the maturity date on which you want the contract to end (Sept).
Decide on how many contracts to buy (three).
Fill in all of the above information on the worksheet as in the example.
Multiply the number of contracts times the number of units per contract to find the total amount of units purchased and fill in the Face Value column (15,000 bu).
Multiply the Face Value times the cost per unit (settle price) and fill in the Total Investment ($46,150).
How to Sell a Futures Contract:
Find the contract based on commodity and maturity date.
Multiply the number of units by the new settlement price and fill in the Total Received column.
Calculate your gain or loss by subtracting the Total Investment from the Total Received column.
How to Find a Specific Futures Contract on Bloomberg:
To display functions available in the commodity market sector, hit [CMDTY] followed by [GO].
To display a menu of futures contracts grouped by exchange:
Choose number 2 (Futures Tickers by Exchange) from the Commodity Sector Menu.
Choose number of exchange.
To display a contract table for the desired commodity, choose the number of the commodity.
To display a menu of functions for the desired security, type the number of the security followed by the [CMDTY] and [GO] keys.
Futures Options
Sample WSJ Listings:
6/19/96 7/31/96
GOLD (CMX) GOLD (CMX)
100 troy ounces; $ per troy ounce 100 troy ounces; $ per troy ounce
Strike Calls-Settle Puts-Settle Strike Calls-Settle Puts-Settle
Price Aug. Sep. Oct. Aug. Sep. Oct. Price Sep. Oct. Dec. Sep. Oct. Dec.
400 .50 1.80 2.70 12.80 11.20 12.10 400 .10 .80 2.40 12.20 12.60 12.10
Description of Columns:
Remember that a call option gives you the right to buy a commodity and a Put gives you the right to sell.
The bold lines give the name of the commodity, the market it trades on, the number of units per contract, and the way prices are quoted below.
The first column gives the strike price, the price at which the contract will be executed at if the holder decides to exercise his or her right.
The second through fourth columns give the option premiums per unit you must pay to obtain a call contract.
The fifth through seventh columns give the option premiums per unit you must pay to obtain a put contract.
How to Buy an Option (Call or Put):
Decide which commodity to buy.
Decide whether you want a call or a put option (the call is used in example above, both shown on the sample worksheet).
Decide how long you want the option by choosing a maturity date (Oct. 1996).
Decide how many contracts you want (100).
Write all of the above information in the worksheet as shown in the sample at end of instructions.
Multiply the number of contracts (100) times the number of units per contract (100tr. oz.) and fill in the Face Value column.
Multiply the Face Value by the premium per unit ($2.70) and fill the Total Investment column.
How to Sell an Option (Call or Put):
Find the option using the commodity, the strike price, and the maturity date.
Multiply the total investment by the new premium to find the total received.
Subtract the total investment from the total received to find your gain or loss.
How to Find a Specific Option on Bloomberg:
To display functions available in the commodity market sector, hit [CMDTY] followed by [GO].
To display a menu of futures contracts grouped by exchange:
Choose number 4 (Options Tickers by Exchange) from the Commodity Sector menu.
Choose number of exchange.
To display a contract table for the desired commodity, choose the number of the commodity.
To display a menu of functions for the desired security, type the number of the security followed by the [CMDTY] and [GO] keys.
Government Agency Notes:
See the sample worksheet.
How to Record Transactions
Record transactions on a excel spreadsheet patterned after the worksheet found in Appendix B. You are expected to make a minimum of two transactions per week (buy or sell or both) for x number of weeks. Record the dates of your transactions. The more active you are in buying and selling, the more you will learn. All examples of the worksheet assume you are filling the worksheet in from left to right.
How to Record Changes in Market Values
Keep a journal (either in a notebook or on your computer) where you note changes in prices and market values on your assets at least once per week, preferably on the same day, for example, every Monday. Think about the reasons for these changes. Don’t worry if you lose money, or if you are not sure you have got it right. Just work it out the best you can!
A Word of Caution
This outline provides only a streamlined review of financial market transactions. Numerous other requirements exist for making transactions in the real world, especially in derivative markets. We want you to see a broad overview of how markets work, without getting consumed by details that are beyond the scope of this course. Do not assume you have all the information you need to make actual transactions in the real world.
Assignment Submission
You will submit your completed assignments electronically through the course. Please submit your analysis paper in PDF format and your Transaction worksheet in an excel spreadsheet. For information on saving and submitting your assignment, please see the syllabus.